Housing production was strong in the second quarter of 2006. Building permits, starts, and completions each totaled more than 1.8 million units at a seasonally adjusted annual rate (SAAR), although they were lower than their first quarter values. Single-family production remained strong but decreased from the records set in the first quarter. Shipments of manufactured homes declined in the second quarter.
· In the second quarter of 2006, builders took out permits for 1,929,000 (SAAR) new housing units. The number of permits is 10 percent below the first quarter of 2006 and 11 percent below the second quarter of 2005. Single-family permits were issued for 1,436,000 (SAAR) housing units, down 9 percent from the first quarter and down 9 percent from the second quarter of 2005.
· Construction was started on 1,878,000 (SAAR) new housing units in the second quarter of 2006, down 12 percent from the first quarter and down 9 percent from the second quarter of 2005. Single-family starts equaled 1,533,000 (SAAR) units, down 12 percent from the first quarter and down 10 percent from the second quarter of 2005.
· In the second quarter of 2006, construction was completed on 1,985,000 (SAAR) new homes, down 5 percent from the first quarter and down 1 percent from the second quarter of 2005. Single-family completions were 1,690,000, down 3 percent from the first quarter but unchanged from the second quarter of a year earlier.
· Manufacturers shipped 122,000 (SAAR) new manufactured homes in the second quarter of 2006, down 17 percent from the first quarter of 2006 and down 4 percent from the second quarter of 2005. Shipments are now well below the levels before Hurricane Katrina hit the gulf coast in August 2005.
Housing Marketing
Sales of new homes increased but sales of existing homes declined in the second quarter of 2006. Prices were mixed. New home prices declined, but existing home prices increased from the first quarter; however, both new and existing home prices increased from the second quarter of 2005. Inventories have increased, with the inventory of new homes available for sale increasing 24 percent from a year earlier, setting a new record, and the inventory of existing homes available for sale increasing 39 percent from a year earlier. Builders, who were less optimistic in the second quarter, expressed their concern across current sales, future sales expectations, and prospective buyer traffic.
· During the second quarter of 2006, builders sold 1,152,000 (SAAR) new single-family homes, up 4 percent from the first quarter but down 10 percent from the second quarter of 2005.
· REALTORSâ sold 6,693,000 (SAAR) existing homes in the second quarter of 2006, down 1 percent from the first quarter and down 7 percent from the second quarter of 2005.
· The median price for new homes sold in the second quarter of 2006 was $241,100, down 3 percent from the first quarter but up 3 percent from the second quarter of 2005. The average sales price declined 2 percent from the first quarter but increased 4 percent from the second quarter of 2005 to $299,500. The price of a constant-quality new home was estimated to be $267,100, up 2 percent from the first quarter and up 4 percent from the second quarter of 2005.
· Existing homes sold during the second quarter of 2006 had a median price of $227,300, up 4 percent from the first quarter and up 3 percent from the second quarter of 2005. The average price was $273,300, up 3 percent from the first quarter and up 2 percent from the second quarter of 2005.
· The inventory of new homes available for sale was 566,000, up 2 percent from the first quarter and up 24 percent from the second quarter of 2005. This inventory, the highest since the series began in 1963, would support 6.1 months of sales at the current sales pace, unchanged from the end of the first quarter but up 1.8 months from the end of the second quarter of 2005. The inventory of existing homes available for sale at the end of the second quarter of 2006 was 3,725,000, up 16 percent from the first quarter and up 39 percent from the second quarter of 2005. This inventory, the highest ever reported, would support 6.8 months of sales at the current sales pace, up 1.2 months from the first quarter of 2006 and up 2.4 months from the second quarter of 2005.
· Home builders were less optimistic in the second quarter of 2006 than they were in the first quarter, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index was 46 in the second quarter, down 10 points from the first quarter of 2006 and down 24 points from the second quarter of 2005. All three components of the composite index declined—current sales were down 10 points, future sales expectations were down 9 points, and prospective buyer traffic was down 6 points.
Affordability and Interest Rates
In the second quarter of 2006, the interest rate for 30-year, fixed-rate mortgages averaged 6.60 percent, up 36 basis points from the first quarter and up 88 basis points from the second quarter of 2005. Housing affordability declined from the first quarter of 2006 and from the second quarter of 2005, according to the index published by the NATIONAL ASSOCIATION OF REALTORS®. The composite index indicates that in the second quarter of 2006 the family earning the median income ($59,212) had 105.8 percent of the income needed to purchase the median-priced ($227,533) existing home using standard lending guidelines. This value is down 6.3 points from the first quarter of 2006 and down 9.1 points from the second quarter of 2005. This decline is attributable to a 4-percent increase in the median house price and a 24 basis-point increase in the interest rate, more than offsetting the 1.0 percent increase in the median family income. The decline from the second quarter of 2005 resulted from a 4-percent increase in the median house price and an 80-basis-point increase in the mortgage interest rate, offsetting the 4.0-percent increase in the median family income. Despite this decline in affordability, the national homeownership rate in the second quarter of 2006 was 68.7 percent, up 0.2 percentage point from the first quarter of 2006 and up 0.1 percentage point from the second quarter of 2005.
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This week brings us the release of seven economic reports for the bond market to digest. Three of them are considered to be of low importance and likely will have little impact on mortgage rates. With data scheduled for release each day, we may see an active week in the bond and mortgage markets.
